www.lehighvalley.org

Q4 2016

LEHIGH VALLEY COMMERCIAL REAL ESTATE REPORT

ISSUE # 008

OFFICE & INDUSTRIAL MARKETS

2 COMMERCIAL REAL ESTATE REPORT • Q4 2016

CURRENT CONDITIONS

The Lehigh Valley industrial market grew by nearly 7 percent over the course of 2016, reaching a total inventory of 113.6 million square-feet. The region saw a total of 7 million square-feet in net absorption and 7.3 million in deliveries to the industrial market in 2016. Industrial vacancy rates declined from 6.5 percent in the first quarter of the year to a current rate of 4.9 percent, while asking rates per square-foot rose from $4.85 at the beginning of the year to $5.04 by the fourth quarter.

The regional office market saw 356,338 square-feet in deliveries in 2016, for a total inventory of 25.6 million square-feet. Vacancy rates have remained largely steady throughout the year, currently coming in at 9.1 percent, compared to 9.4 percent in the first quarter of 2016. Likewise, asking rates per square-foot are currently averaging $14.89, compared to $15.11 in the first quarter of the year.

The most noteworthy addition to the Lehigh Valley office market was Guardian Life Insurance’s new office complex at 6255 Sterners Way in Hanover Township, Northampton County. Guardian, one of the nation’s largest mutual life insurers, consolidated its previous regional headquarters – which were spread across three buildings in the region – into one three-story, 281,680-square-foot facility, a testament to the future growth of the company and to its commitment to the Lehigh Valley.

The Lehigh Valley’s gross domestic product (GDP) reached a record-high $36.97 billion in 2015 (the most recent year data is available), which marks a 2.2 percent increase over the previous year. This continues a pattern of consistent growth for the region, which has seen a GDP increase of at least $750 million each year since 2010, when it was $31.34 billion.

The Lehigh Valley GDP is larger than that of 97 other countries in the world and the entire state of Vermont ($30.4 billion), and is only $1.65 billion behind the GDP of the state of Wyoming ($38.62 billion). Notably, manufacturing is now the region’s top economic sector, generating $5.56 billion – or 15 percent – of the overall GDP.

- Jarrett Witt, LVEDC Director of Business Development

One of the core principles of the Lehigh Valley Economic Development Corporation (LVEDC) is to serve as the leading source of economic data and market intelligence on the Lehigh Valley’s economic assets and resources to serve our economic strategies, marketing efforts, and the needs of our stakeholders. To that end, LVEDC prepares a series of quarterly reports about the real estate climate in the Lehigh Valley. This report focuses on the region’s office, industrial, and flex markets.

BROKER PERSPECTIVE “Overall, LVIP is benefitting from a strengthening Lehigh Valley industrial market as we’ve attracted a number of manufacturers to LVIP VII. There continues to be a serious shortage of Class A industrial space in the range of 10,000 to 50,000 square feet, which we need to support small business growth in the Lehigh Valley. LVIP is evaluating initiatives to address this need.”- Kerry Wrobel, President, Lehigh Valley Industrial Park

3COMMERCIAL REAL ESTATE REPORT • Q4 2016

VACANCY RATE (PERCENT)

INDUSTRIAL MARKET

113.6 MillionTotal Inventory (SF)

4.9 MillionNet Absorption (SF)

$5.04Average Asking Rent (NNN)

210,000Total Under Construction (SF)

4.9%Total Vacancy

7 Million2016 Net Absorption (SF)

4.3%YOY Rent Growth

7.3 MillionYTD Deliveries (SF)

Includes Flex. Source: CoStar (12/31/16 data set), LVEDC Research

MARKET SUMMARY

SUPPLY & DEMAND2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4

SF

Deliveries (supply)Absorption (demand)

0K

994K

63K454K

1,629K

4,889K

1,996K1,748K

261K

5,262K

1,000K

2,000K

3,000K

4,000K

5,000K

6,000K

ASKING RATE (PER SF)

Real Estate Class

Vaca

ncy

Perc

ent

500K 100K to 499K 20K to 99K Combined

2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q42015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4

10%

8%

6%

4%

0%

2%

$4.83 $4.85 $4.94 $5.00 $5.04

$4.59 $4.59$4.76

$4.64

$4.19 $4.23 $4.28 $4.35 $4.46 $4.46

$5.30

$5.54 $5.52 $5.53 $5.59

$4.20

$4.40

$4.60

$4.80

$5.00

$5.20

$5.40

$5.60

5.0%

6.5% 6.3%

4.8%4.9%

2.3%

5.4% 5.3%

3.7%

5.6%

8.1%9.3% 9.0%

6.9%

5.1%4.0% 4.2% 4.1%

3.4%4.0%

4 COMMERCIAL REAL ESTATE REPORT • Q4 2016

VACANCY RATE (PERCENT)

OFFICE MARKET

25.6 MillionTotal Inventory (SF)

(46,682)Net Absorption (SF)

$14.89Average Asking Rent

-Total Under Construction (SF)

9.1%Total Vacancy

504,4942016 Net Absorption (SF)

-1.3 %YOY Rent Growth

356,338YTD Deliveries (SF)

Source: CoStar (12/31/16 data set), LVEDC Research

MARKET SUMMARY

SUPPLY & DEMAND2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4

SF

Deliveries (supply) Absorption (demand)

0K

57K102K

402K

48K

-47K

00

290K

0

66K

-100K

100K

200K

300K

400K

ASKING RATE (PER SF)

Real Estate Class

Vaca

ncy

Perc

ent

A B C Combined

2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4

9.8% 9.4% 8.8% 8.6% 9.1%

20.3%17.7% 16.7% 15.7% 16.7%

7.2%7.6% 7.3% 7.5% 7.2%

5.6% 5.5% 4.7% 4.5% 5.5%

0%

5%

10%

15%

20%

25%

$15.09 $15.11 $15.05 $15.02 $14.89

$18.29 $18.25 $18.24 $18.30 $18.17

$14.28 $14.43 $14.27 $14.10 $14.06

$12.13 $11.87 $11.96 $12.51 $12.36

$10

$12

$14

$16

$18

5COMMERCIAL REAL ESTATE REPORT • Q4 2016

BROKER PERSPECTIVE “The Lehigh Valley office market closed 2016 with exceptionally low vacancy rates, particularly in Class A product. With the completion of two new office buildings with more than 100,000 square feet of available space in the Allentown NIZ and up to a million additional square feet in the development pipeline, expect tenant leverage to improve in 2017 if current space requirements remain steady.” - Lauren Gilchrist Vice President, Director of Research for Philadelphia, JLL

6 COMMERCIAL REAL ESTATE REPORT • Q4 2016

Source: Lehigh and Northampton County Real Estate Tax Records, LVEDC Research, CoStar

Q4 2016 COMMERCIAL REAL ESTATE TRANSACTIONS

PROPERTY SFTENANT

REPRESENTATIVELANDLORD

REPRESENTATIVE TENANT MUNICIPALITY CLASS

4863 Hanoverville Rd 527,120 JLL JLL Barry Callebaut Lower Nazareth Twp Industrial

5210 Jaindl Blvd 130,971 JLL CBRE Tesla Motors Hanover Twp (Northampton) Industrial

100 Cascade Dr 50,280 CBRE CBRE FMI Hanover Twp (Lehigh) Industrial

1 S 3rd St 19,500 Prudential Paul Ford Realtors VM Development Lafayette

College Easton Office

914 Marcon Blvd 16,800 McGowan Corporate Real Estate Advisors NAI Summit Folz Hanover Twp (Lehigh) Industrial

6813 Ruppsville Rd 16,000 Veraxia CBRE Shangys Upper Macungie Twp Industrial

9999 Hamilton Blvd 12,212 NAI Summit CBREVersum

Materials US LLC

Upper Macungie Twp Office/Lab

861 Marcon Blvd 11,987 CBRE Hanover Twp (Lehigh) Office

1 S 3rd St 6,500 LM Information Delivery VM Development LM Information Delivery Easton Office

NOTABLE LEASES

PROPERTY BUYER SELLER SALE PRICE MUNICIPALITY CLASS

7055 Ambassador Dr W LHV Portfolio Investors LLC Cam 7055 Ambassador LLC $11,250,000 Upper Macungie Twp Industrial

6690 Grant Way LHV Portfolio Investors LLC Cam 6670 Grant Way LLC $6,300,000 Upper Macungie Twp Industrial

6670 Grant Way LHV Portfolio Investors LLC Cam 6670 Grant Way LLC $5,400,000 Upper Macungie Twp Industrial

6810 W Tilghman St LHV Portfolio Investors LLC Cam 6810 Tilghman LLC $2,275,000 Upper Macungie Twp Industrial

4000 N Miller Cir Lineage PABethlehem RE LLC Icon Kraft Owner Pool 2 LLC $32,100,000 Bethlehem Twp Industrial

8449 Congdon Hill Dr Liberty Property Limited Partnership Jaindl David M $11,762,800 Lower Macungie Twp Industrial

74 W Broad St 74 West Broad LLC Liberty Property Limited Partnership $11,200,000 Bethlehem Office

2120 Newlins Mill Rd Werner Enterprises Inc Fehnel Clarence H & Carol J $6,251,150 Palmer Twp Industrial

2024 Lehigh St Lehigh Valley Hospital Inc Health Network Laboratories LP $6,200,000 Allentown Office

1460 Tatamy Rd Werner Enterprises Inc Raub Anderson C Sr & Viola R $5,955,250 Palmer Twp Industrial

3262 Schoeneck Rd Schoeneck Road Development Jaindl Fred J $3,400,000 Lower Macungie Twp Industrial

W Penn Ave Liberty Property Limited Partnership Jaindl David M $3,293,400 Alburtis Industrial

200 Hilton Street West Pendho LLC Glendon Properties Inc $2,700,000 Glendon Industrial

1990 Highland Ave Triple Net Investments IX Highland Avenue Realty LLC $2,675,000 Bethlehem Twp Office

3135 Schoenersville Rd USA Industrial Holdings LLC Marcon Ruth $2,625,000 Bethlehem Industrial

2233 26Th St SW Allentown Wismarq Bouras Acquisition Inc $2,460,000 Allentown Industrial

7020 Snowdrift Rd 7020 Snowdrift Investors LLC Cam 7020 Snowdrift LLC $2,275,000 Upper Macungie Twp Industrial

NOTABLE SALES

7COMMERCIAL REAL ESTATE REPORT • Q4 2016

Q4 2016 COMMERCIAL REAL ESTATE TRANSACTIONS

ECONOMIC CONDITIONS

Industry NameHealth Care & Social Assistance

Retail Trade

Manufacturing

Accommodation& Food Services

Educational Services

Administrative Services

Transportation& Warehousing

Construction

Other Services

Professional Services

Wholesale Trade

Finance &Insurance

Managementof Companies

PublicAdministration

Arts, Entertainment,& Recreation

Information

Real Estate

Other0

10K

20K

30K

40K

50K

60K

EMPLOYMENT BY INDUSTRY

Jan-12 Jan-13 Jan-14 Jan-15 Jan-160.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Lehigh Valley Pennsylvania United States

Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 20160.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Total nonfarm, Seasonally-adjusted figures. Source: JobsEQ®. Data as of 2016 Q4.

Source: JobsEQ®. Data as of 2016 Q4.

LABOR MARKET JOB GROWTH UNEMPLOYMENT RATE

“There is no doubt the industrial boom in the Lehigh Valley continues. We are one of the centers of the e-commerce storm on the East Coast and in the nation. This past year has been another big year for new development and the retention and expansion of existing businesses. Additionally, manufacturing is once again our number one business, making up 15 percent of our $37 billion GDP, which is why one of the themes of our new marketing campaign has been: ‘Hey, world, we still make stuff here in the Lehigh Valley!’”- Don Cunningham, President & CEO, Lehigh Valley Economic Development Corporation

Lehigh Valley Metro. Source: BLS & PA Center for Workforce Information & Analysis (CWIA)

The health care industry remains the Lehigh Valley’s top employer, making up 17.67% of total employment within the region. The Lehigh Valley’s unemployment rate is 5.7% as of November 2016, which follows largely the same pattern as the national rate.

2158 Avenue C, Suite 200 Bethlehem, PA 18017Phone: 610-266-6775 • Fax: 610-266-7623

www.lehighvalley.org

Our MissionThe mission of the Lehigh Valley Economic Development Corporation is to market the economic assets of the Lehigh Valley and to serve as a regional shared services and resource center to help businesses to come,grow and start here.

Our VisionOur vision is of a Lehigh Valley with a diverse economic base in our cities and counties that enable businesses to come here, start here and flourish here in order to create jobs and opportunities for all of our residents.

Our Priorities• Marketing Economic Assets• Coordinating a Prepared Workforce• Focusing on City and Urban Development• Serving as a Shared Services Center• Providing Access to Capital• Building our Resources and Engaging

Stakeholders

Lehigh ValleyCome here. Grow here. Start here.

©2017 Lehigh Valley Econom

ic Developm

ent Corporation. All R

ights Reserved. 02.17

LVEDC

Com

mercial R

eal Estate Report designed by M

ichelle Chrin.